The nation's 500 largest banks in 1991 continued their full-scale retreat from the municipal market, reducing net tax-exempt assets by $9.84 billion, or 21%, according to federal banking reports.

The degree of selling was intense. Forty-three institutions sold off more than 90% of municipal holdings, 13 of which completely wiped out their municipal portfolios, the reports say. For banks, tax-exempts are valuable only during profitable times, and 1990 was a rough banking year, bank officials said.

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